GTE reshaping Internet offers: New packages aimed at small business, residential customers

When America Online raised its basic unlimited access package by $2, the general consensus was that the company wouldn't founder because it had enough market power to dictate a 10% price increase. A few months later, AOL hasn't skipped a beat, continuing to add subscribers at a rapid pace.

Far from causing a subscriber backlash, AOL has created a chain reaction among many other top-tier Internet service providers that also are raising prices. GTE Internetworking is the latest to make its move, saying it will create tiered services throughout the year to better match customer demand.

Earlier this month, the company raised its flat-rate, unlimited access price from $19.95 to $24.95 a month. Instead of simply raising prices, though, the company also is enhancing its premium package by providing two unique e-mail boxes, enhanced Web site customization services featuring CNET's Snap! Online, and increased personal Web storage space for the creation of individual home pages of up to 5 Mbytes in size.

The new service will cost users a $15 start-up fee. GTE will continue to offer its basic $19.95 package, which includes one e-mail box and basic content aggregation services, but the amount of personal Web storage space will decrease from 5 to 2 MBytes in the second quarter.

"We're going to start offering different tiers of service and giving people reasons to choose," said Chris Davis, product manager for dial-up Internet access. "The most compelling reason on the higher end will be additional e-mail addresses. For all the hype around advanced services, e-mail is still the No. 1 application for our customers."

Later in the year, the company will offer a more advanced package geared toward families. That package will go for $29.95 a month and may include more e-mail accounts and increased Web storage space.

However, GTE will not follow other ISPs in offering an all-you-can-eat $21.95 package, said Michael Bolduc, director of product management for GTE Internetworking Services. "We chose not to go to $21.95 because we didn't feel it was compelling enough. Even at $19.95 there's some headroom, but we want to create a real difference in packages."

GTE's move comes at a critical time for ISPs in general and telco-owned ISPs in particular. Less than two years since launching, GTE Internetworking has moved into the big leagues, surpassing 360,000 Internet access customers and adding more than 3000 subscribers per day. "In some POPs, we're growing 100% per month," said Bolduc.

Maintaining that growth will require the company to become more aggressive outside its territories. However, because those territories are spread out, GTE faces some challenges, said Joe Bartlett, an analyst with The Yankee Group. "They are a very unique case because they don't have a region like the [Bell companies]. Yet they're not like the [interexchange carriers] that have a strong national brand," he said.

To combat that, GTE will continue offering package discounts to customers who sign up for multiple services such as GTE Internet and long-distance. One of its basic offerings knocks its Internet access down to $17.95 a month for those choosing GTE long-distance. Existing local phone customers also get both services placed on one bill.

On the consumer end, the company is pinning its strategy on its relationships with PC manufacturers that equip their computers with pre-loaded software to provide desktop access to GTE Internet service.

Under the Easy Internet Access program, GTE Internet service is pre-loaded on selected Acer, Compaq, Hewlett-Packard and Sony computers before they are distributed to retailers. New computer buyers then have the option of signing up for 50 free hours of GTE Internet service. Easy Internet Access subscribers have 90 days to use up their 50 free hours, with a maximum use of two hours a day. Unlike many other ISPs, though, the company doesn't ask for a credit card number until the end of the trial. Since July, more than 80,000 subscribers have taken advantage of the free trial offer, with 26% of those becoming paid customers.

"It creates a one-touch experience, and it's clearly a non-committal trial," said Bolduc.

At the same time, getting on the hard drive allows GTE to activate all the necessary drivers and other files required to access its Internet service resulting in significantly fewer help desk calls. "That mechanism alone is responsible for 60% to 70% of growth."

High-speed access also will play a role in GTE's growth, although not as much as some analysts predict, said Bolduc. Initially, the company will offer an asynchronous service designed for specific applications such as medical imaging. GTE's competitive local exchange carrier unit, GTE Communications, currently offers asymmetrical digital subscriber line (ADSL) service in select out-of-region markets. By the end of the year, GTE will roll out in-region ADSL, charging somewhat more for it than the $39.95 currently charged for ISDN.

"We're going to be very active in that market, but we don't think we're going to have more than 1000 paying customers this year," said Bolduc. "But it's going to develop to a point where we will serve in the hundreds of thousands in five years."

On the business side, the company is hoping to increase use of its Web hosting services particularly among small businesses. Less than 10% of GTE Internet's $19.95 customers now use the free Web space offered by that account. However, GTE doesn't differentiate between consumer and small business users with that type of access.

"Next quarter, we'll be coming out with Web hosting in the region of $20 to $30," said Davis. "That will give users a very inexpensive way to host a Web site."

Small business users also will have a home page that addresses their concerns.

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